The Lords Of Trade

The Chicago Board Options Exchange

Charles J. Henry, President, Coo

March 22, 1992|By William B. Crawford Jr.

When Charles J. Henry, the president and chief operating officer of the Chicago Board Options Exchange, graduated from high school in Anderson, Ind., he was offered some paternal advice. ``My father told me, `You can go East, or you can go West, but you`re not staying here, because you have to grow up,``` recalls Henry, CBOE`s top administrative officer for the last decade.

Henry did both. He traveled to Boston, where he obtained business and engineering degrees from the Massachusetts Institute of Technology in 1958;

and, later, to Southern California, by way of a three-year hitch in the Air Force, where he helped the Pacific Stock Exchange launch a stock options market in the mid-`70s.

``The Pacific Stock Exchange was the fifth and last securities options market to come on line,`` says Henry, who lives in Glenview with his wife and four sons. ``But it was very much a success, beginning only with 20 stock options in 1975.``

In 1979, after moving up to Pacific Stock Exchange president, Henry was offered the CBOE post, one he accepted without hesitation because of the exchange`s pre-eminent position among options markets around the world, because of its commitment to technology enhancement and because the job meant a return to ``the Midwest, a locale that has always occupied a special place in my heart,`` Henry says.

``The CBOE is unique in its commitment to technology, to building systems that enable the customer to obtain an efficient, quick turnaround on his or her order at low cost and with a minimal amount of error,`` he says.

Henry says that 25 percent of CBOE`s current $75 million operating budget is devoted to upgrading computerized trading technologies and other systems that directly benefit the outside customer. Between 1986 and 1990, he added, CBOE`s approximately 1,200 members approved $35 million in expenditures on similar hardware and software improvements.

One of the most important payoffs from these investments was the introduction in the mid-`80s of the retail automatic execution system, known as RAES, which allows small public customer orders to be filled automatically at the prevailing bid or offer, with the order`s execution reported back to the customer within seconds. Others include the ``auto quote,`` which provides updating for market quotes in less active options contracts, and the

``electronic book,`` which dramatically increased the speed of execution for certain limit and market orders.

Henry notes that CBOE, together with the AMEX and the Cincinnati Stock Exchange, is in discussions with Reuters Holdings PLC to develop an after-hours trading system similar to that being designed by Chicago`s two futures exchanges. Around-the-clock trading in stock options is fast becoming a reality, Henry says, adding that business from foreign customers currently accounts for 15 percent of the total, up from 5 percent in 1986.

Currently, CBOE and the nation`s other securities options markets are under a mandate from the SEC to develop a single stock options market by bringing their trading systems together through a single electronic link. According to Henry, the SEC directive is the single biggest challenge facing CBOE and the stock options trading industry because it will trigger increased competition among the exchanges for customer order flow.

The system, which would link CBOE with the Pacific Stock Exchange, the Philadelphia Stock Exchange, the American Stock Exchange and the New York Stock Exchange, is expected to cost up to $15 million and take two years to build. Once in place, all market participants would have equal information about a customer buy or sell order when it hits the exchange floor and, presumably, an equal shot at bidding on that order.

``Technology is exploding, constantly changing, and in the end, the dominant options exchange, just like the airline industry, which has gone through similar deregulation, will be the one that takes advantage of these new technologies, and I expect that exchange to be the CBOE,`` he says.